Correlation Between IShares Latin and First Trust

Can any of the company-specific risk be diversified away by investing in both IShares Latin and First Trust at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares Latin and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Latin America and First Trust Asia, you can compare the effects of market volatilities on IShares Latin and First Trust and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares Latin with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Latin and First Trust.

Diversification Opportunities for IShares Latin and First Trust

0.77

Correlation Coefficient

IShares Latin  First Trust

Poor diversification

The 3 months correlation between IShares and First is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares Latin America and First Trust Asia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Asia and IShares Latin is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares Latin America are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Asia has no effect on the direction of IShares Latin i.e., IShares Latin and First Trust go up and down completely randomly.

Pair Corralation between IShares Latin and First Trust

Considering the 90-day investment horizon iShares Latin America is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, iShares Latin America is 1.16 times less risky than First Trust. The etf trades about -0.09 of its potential returns per unit of risk. The First Trust Asia is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,615  in First Trust Asia on September 20, 2024 and sell it today you would earn a total of  120.00  from holding First Trust Asia or generate 4.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.79%
Values	Daily Returns

iShares Latin America  vs.  First Trust Asia

iShares Latin America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Latin America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Etf's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

First Trust Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Asia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with IShares Latin and First Trust

The main advantage of trading using opposite IShares Latin and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Latin position performs unexpectedly, First Trust can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in First Trust will offset losses from the drop in First Trust's long position.

The idea behind iShares Latin America and First Trust Asia pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.